Bond Market Update

Longer Tenors Pad Recent Gains

• U.S. Treasuries finished the week on a subdued note with 10s and 30s padding this week's modest gains while the 2-yr note finished flat, ending the week with a modest loss. The trading day started with slight relative strength up front and relative weakness in longer tenors after a night that featured weakness in European equities and sovereign debt amid growing expectations that the European Central Bank will not make another rate cut before Q4. Longer tenors spent early trade in a sideways range, rising to fresh highs in the late morning in a move that coincided with a push to fresh record highs in the S&P 500 and Nasdaq. The entire complex spent afternoon trade near session highs with the 30-yr yield finishing just above its 50-day moving average (4.925%) while the 10-yr yield fell below the 50-day moving average of its own (4.408%), settling not far above its 200-day moving average (4.371%). This week's action compressed the 2s10s spread by eight basis points to 47 basis points. Crude oil finished in the red, giving up $0.86, or 1.3%, for the week, while the U.S. Dollar Index rose 0.3% to 97.69, narrowing this week's loss to 0.8%.
• Yield Check:
  • 2-yr: UNCH at 3.92% (+4 bps this week)
  • 3-yr: -1 bp to 3.86% (+2 bps this week)
  • 5-yr: -2 bps to 3.95% (-1 bp this week)
  • 10-yr: -2 bps to 4.39% (-4 bps this week)
  • 30-yr: -2 bps to 4.93% (-7 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q2 GDP was left unrevised at 2.4% in the latest update.
  • The EU and the U.S. could reach a framework for a final trade deal over the weekend, according to Reuters.
  • President Trump had a public disagreement with Fed Chairman Powell about renovation costs of the Eccles building last evening, but more notably, the president said that he doesn't think it is necessary to fire the Fed chairman.
  • The European Central Bank's latest survey of professional forecasters trimmed its harmonized inflation forecast for 2025 and 2026 by 20 basis points. The growth forecast for 2025 was increased to 1.1% from 0.9% while the outlook for 2026 was cut to 1.1% from 1.2%.
  • Expectations for an October rate hike from the Bank of Japan continued increasing and there was speculation that the BoJ could announce a surprise rate hike next week to get ahead of political uncertainty associated with the expected resignation of Prime Minister Ishiba.
  • The Reserve Bank of New Zealand expects a 0.3% contraction in New Zealand's Q2 GDP.
  • Thailand's acting prime minister warned that hostilities with Cambodia are leading toward war.
  • Japan's July Tokyo CPI was up 2.9% yr/yr (last 3.1%) and Tokyo Core CPI was also up 2.9% yr/yr (expected 3.0%; last 3.1%). June Corporate Services Price Index was up 3.2% yr/yr, as expected (last 3.4%). May Leading Index rose to 104.8 from 104.2 (expected 105.3) and Coincident Indicator was unchanged m/m (expected -0.1%; last 0.2%). 
  • Singapore's Q2 URA Property Index was up 1.0% qtr/qtr (expected 0.5%; last 0.8%). June Industrial Production was unchanged m/m (expected -1.5%; last 1.0%), rising 8.0% yr/yr (expected 7.1%; last 3.6%).
  • Eurozone's June M3 Money Supply was up 3.3% yr/yr (expected 3.7%; last 3.9%) and June Private Sector Loans rose 2.2% yr/yr (expected 1.9%; last 2.0%). 
  • Germany's July ifo Business Climate Index ticked up to 88.6 from 88.4 (expected 89.0). July Current Assessment rose to 86.5 from 86.2 (expected 86.7) and July Business Expectations ticked up to 90.7 from 90.6 (expected 91.1).
  • U.K.'s June Retail Sales rose 0.9% m/m (expected 1.2%; last -2.8%), increasing 1.7% yr/yr (expected 1.8%; last -1.1%). June Core Retail Sales were up 0.6% m/m (expected 1.2%; last -2.9%), rising 1.8% yr/yr (expected 2.0%; last -1.2%).
  • France's July Consumer Confidence rose to 89 from 88 (expected 88).
  • Italy's July Business Confidence rose to 87.8 from 87.3 (expected 87.7) and July Consumer Confidence rose to 97.2 from 96.1 (expected 96.0).
• Today's Data:
  • Durable goods orders were down 9.3% month-over-month in June (Briefing.com consensus -11.0%) after an upwardly revised 16.5% jump in May (from 16.4%). Excluding transportation, durable goods orders were up 0.2% month-over-month (Briefing.com consensus -0.2%) after rising a revised 0.6% (from 0.5%) in May.
    • The key takeaway from the report is that the sharp headline decrease was largely due to a drop in transportation equipment orders after a big jump in May, though nondefense capital goods orders, excluding aircraft—a proxy for business spending—fell 0.7% after increasing 2.0% in May, reflecting a moderation after a solid rise.
• Commodities:
  • WTI crude: -1.4% to $65.17/bbl
  • Gold: -1.2% to $3335.70/ozt
  • Copper: -0.2% to $5.79/lb
• Currencies:
  • EUR/USD: UNCH at 1.1742
  • GBP/USD: -0.5% to 1.3434
  • USD/CNH: +0.2% to 7.1661
  • USD/JPY: +0.3% to 147.59
• The Week Ahead:
  • Monday: $69 bln 2-yr Treasury note auction results at 11:30 ET and $70 bln 5-yr Treasury note auction results at 13:00 ET
  • Tuesday: June advance International Trade in Goods (prior -$96.6 bln), advance Retail Inventories (prior 0.3%), and advance Wholesale Inventories (prior -0.3%) at 8:30 ET; May FHFA Housing Price Index (Briefing.com consensus -0.2%; prior -0.4%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 3.0%; prior 3.4%) at 9:00 ET; July Consumer Confidence (Briefing.com consensus 95.5; prior 93.0) at 10:00 ET; and $44 bln 7-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 0.8%) at 7:00 ET; July ADP Employment Change (Briefing.com consensus 78,000; prior -33,000) at 8:15 ET; advance Q2 GDP (Briefing.com consensus 2.5%; prior -0.5%) and advance Q2 GDP Deflator (Briefing.com consensus 2.6%; prior 3.8%) at 8:30 ET; June Pending Home Sales (Briefing.com consensus 0.4%; prior 1.8%) at 10:00 ET; weekly crude oil inventories (prior -3.17 mln) at 10:30 ET; and July FOMC Rate Decision (Briefing.com consensus 4.25-4.50%; prior 4.25-4.50%) at 14:00 ET
  • Thursday: June Personal Income (Briefing.com consensus 0.3%; prior -0.4%), Personal Spending (Briefing.com consensus 0.4%; prior -0.1%), PCE Prices (Briefing.com consensus 0.3%; prior 0.1%), core PCE Prices (Briefing.com consensus 0.3%; prior 0.2%), Q2 Employment Cost Index (Briefing.com consensus 0.8%; prior 0.9%), weekly Initial Claims (Briefing.com consensus 220,000; prior 217,000), and Continuing Claims (prior 1.955 mln) at 8:30 ET; July Chicago PMI (Briefing.com consensus 42.1; prior 40.4) at 9:45 ET; and weekly natural gas inventories (prior +23 bcf) at 10:30 ET
  • Friday: July Nonfarm Payrolls (Briefing.com consensus 102,000; prior 147,000), Nonfarm Private Payrolls (Briefing.com consensus 110,000; prior 74,000), Unemployment Rate (Briefing.com consensus 4.2%; prior 4.1%), Average Hourly Earnings (Briefing.com consensus 0.3%; prior 0.2%), and Average Workweek (Briefing.com consensus 34.2; prior 34.2) at 8:30 ET; June Construction Spending (Briefing.com consensus 0.1%; prior -0.3%), July ISM Manufacturing Index (Briefing.com consensus 49.5%; prior 49.0%), and final July University of Michigan Consumer Sentiment (Briefing.com consensus 61.8; prior 61.8) at 10:00 ET